Exhibit 21







                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
Phoenix Leasing Incorporated:

         We have audited the accompanying consolidated balance sheets of Phoenix
Leasing Incorporated (a California corporation) and subsidiaries as of September
30, 1999 and June 30, 1998. These financial statements are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

         We conducted our audits in accordance with generally  accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable  assurance  about  whether  the  balance  sheets are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion, the balance sheets referred to above present fairly, in
all material respects,  the financial  position of Phoenix Leasing  Incorporated
and  subsidiaries as of September 30, 1999 and June 30, 1998, in conformity with
generally accepted accounting principles.




San Francisco, California,                                   ARTHUR ANDERSEN LLP
December 28, 1999


                                  Page 1 of 15
<PAGE>


                  PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS

                                                      September 30,    June 30,
                                                          1999           1998
                                                          ----           ----

Cash and cash equivalents                             $  6,720,999  $  6,530,661
Investments in securities                               11,181,265     7,313,855
Trade accounts receivable, net of allowance for
  doubtful accounts of $41,534 and $55,173 at
  September 30, 1999 and June 30, 1998, respectively       310,293       131,575
Receivable from Phoenix Leasing Partnerships, other
  affiliates and trusts                                  3,444,482     4,515,180
Notes receivable from related party                      2,093,883     3,053,037
Equipment subject to lease                              28,093,038     6,622,323
Notes receivable                                        53,032,140    11,814,873
Investments in Phoenix Leasing Partnerships                216,088     2,085,922
Property and equipment, net of accumulated
  depreciation of  $8,654,783 and $11,541,407 at
  September  30, 1999 and June 30, 1998,
  respectively                                           5,463,220     5,900,642
Capitalized initial direct costs of originating
  leases and loans                                       2,394,849       464,207
Other assets                                             2,483,549     2,490,060
                                                      ------------  ------------

         TOTAL ASSETS                                 $115,433,806  $ 50,922,335
                                                      ============  ============

                      LIABILITIES AND SHAREHOLDER'S EQUITY

LIABILITIES:

Warehouse lines of credit                             $ 64,462,354  $ 19,139,328
Payables to affiliates                                        --         382,264
Accounts payable and accrued expenses                    4,907,345     3,806,494
Long-term debt                                          19,185,694       140,215
Deficit in investments in Phoenix Leasing
  Partnerships                                              24,180       409,131
                                                      ------------  ------------

         TOTAL LIABILITIES                              88,579,573    23,877,432
                                                      ------------  ------------

Minority Interests in Consolidated Subsidiaries            169,309       122,744
                                                      ------------  ------------

Commitments and Contingencies (Note 16)

SHAREHOLDER'S EQUITY:

Common stock, without par value, 30,000,000 shares
  authorized, 5,433,600 issued and outstanding at
  September 30, 1999 and June 30, 1998, respectively        20,369        20,369
Additional capital                                      11,466,920    11,466,920
Accumulated other comprehensive income                   5,949,048       236,392
Retained earnings                                        9,248,587    15,198,478
                                                      ------------  ------------

         TOTAL SHAREHOLDER'S EQUITY                     26,684,924    26,922,159
                                                      ------------  ------------

         TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY   $115,433,806  $ 50,922,335
                                                      ============  ============

   The accompanying notes are an integral part of these financial statements.

                                       2
<PAGE>

                  PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
                      NOTES TO CONSOLIDATED BALANCE SHEETS

                               SEPTEMBER 30, 1999


Note 1. Summary of Significant Accounting Policies:

         a.  Organization - Phoenix Leasing  Incorporated and subsidiaries  (the
Company),  a wholly owned subsidiary of Phoenix American  Incorporated (PAI), is
engaged in the management of  partnerships  which  specialize in equipment lease
financing  and secured  lending.  The Company also engages in similar  financing
activities  for its own  account  and pools  these  loans and leases for sale to
trusts which engage in the sale of asset backed securities.

         b. Principles of Consolidation - The consolidated  financial statements
include  the  accounts  of  Phoenix  Leasing  Incorporated  and  its  wholly  or
majority-owned  subsidiaries  and  subsidiaries  over which the  Company  exerts
control.  All  significant  intercompany  accounts  and  transactions  have been
eliminated in consolidation.

              Except as otherwise explained below, minority interests in the net
assets and net income or loss of  majority-owned  subsidiaries  are allocated on
the basis of the proportionate ownership interests of the minority owners.

              Three of the  consolidated  subsidiaries  are  California  limited
partnerships  (the  Partnerships)  which are  general  partners  of three of the
Phoenix Leasing  Partnerships.  As of September 30, 1999, the Company held a 50%
general  partner  ownership  interest  in two of the  Partnerships  and a  62.5%
interest  in one.  Under the terms of the  partnership  agreements,  profits and
losses  attributable to acquisition fees paid to the  Partnerships  from Phoenix
Leasing Partnerships are allocated to the limited partner (the minority owner in
the Partnerships) in proportion to the limited partner's ownership interest. All
remaining profits and losses are allocated to the Company.  Distributions to the
partners are made in accordance with the terms of the partnership agreement. The
limited  partner of each of the  Partnerships  is Lease  Management  Associates,
Inc., a Nevada corporation  controlled by an officer of the Company,  who is the
owner of PAI.

         c.  Investments - Investments in Phoenix Leasing  Partnerships  reflect
the Company's equity basis in the Phoenix Leasing Partnerships. Under the equity
method of accounting the original investment is recorded at cost and is adjusted
periodically  to  recognize  the  Company's   share  of  earnings,   losses  and
distributions after the date of acquisition.  The Company has adopted the equity
method of accounting on the basis of its control and significant  influence over
the Phoenix Leasing Partnerships.

         d. Equipment  Leasing and Financing  Operations - The Company's primary
leasing  activity  is  the  origination  of  financing  leases.  The  method  of
accounting for financing leases  recognizes  unearned income at the inception of
the lease  calculated  as, the excess of net rentals  receivable  and  estimated
residual  value at the end of the  lease  term,  over the cost of the  equipment
leased. Unearned income is credited to income monthly over the term of the lease
on a  declining  basis to  provide  an  approximate  level rate of return on the
unrecovered  cost of the  investment.  Initial direct costs of  originating  new
leases and notes receivable are capitalized and amortized over the initial term.

              The  Company's  notes  receivable  generally  are  stated at their
outstanding unpaid principal balances, which includes accrued interest. Interest
income is accrued on the unpaid principal balance.

         e.  Impaired  Notes  Receivable - Notes  receivable  are  classified as
impaired  and the accrual of interest  on such notes are  discontinued  when the
contractual  payment  of  principal  and  interest  becomes  90 days past due or
management has serious doubts about further  collectibility  of the  contractual
payments,  even  though  the  loan  may  currently  be  performing.  When a note
receivable is classified as impaired,  income  recognition is discontinued.  Any
payments received subsequent to the placement of the note receivable on impaired
status will generally be applied towards the reduction of the  outstanding  note
receivable  balance,  which may include  previously  accrued interest as well as
principal. Once the principal and accrued interest has been reduced to zero, the
remaining payments will be applied to interest income.

         f.  Portfolio  Valuation  Methodology  - The Company uses the portfolio
method  of  accounting  for net  realizable  value  of the  Company's  equipment
portfolio.


                                       3
<PAGE>
                  PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
                      NOTES TO CONSOLIDATED BALANCE SHEETS

                               SEPTEMBER 30, 1999

Note 1.  Summary of Significant Accounting Policies (continued):

         g. Property and  Equipment - Property and  equipment  which the Company
holds for its own use are recorded at cost and  depreciated  on a  straight-line
basis over estimated useful lives ranging up to 45 years.

         h. Income  Taxes - Prior to July 1, 1998,  the Company was  included in
the consolidated and combined tax returns filed by PAI.

              Effective  July 1,  1998,  the  Company  and all its  subsidiaries
adopted treatment as a Subchapter "S" Corporation pursuant to the Federal Income
Tax Regulations for tax reporting  purposes and changed its fiscal year end from
June 30 to September 30. Federal and state income tax  regulations  provide that
taxes on the income or loss of the Company are  reportable on the  shareholder's
individual  income tax return.  Therefore no provision for income taxes has been
recorded for periods subsequent to July 1, 1998.

         i. Investments in Securities - Investments in securities, available for
sale, are stated at fair value or amortized cost which  approximates fair value,
as specified by SFAS 115. Interest is recognized when earned.

         j. Use of  Estimates  - The  preparation  of  financial  statements  in
conformity with generally accepted accounting  principles requires management to
make estimates and  assumptions  that affect the reported  amounts of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting period. Actual results could differ from those estimates.

         k.  Reclassification  - Certain 1998 balances have been reclassified to
conform to the 1999 presentation.

         l. Cash and Cash Equivalents - Includes deposits at banks,  investments
in money  market  funds and other  highly  liquid  short-term  investments  with
original maturities of less than 90 days.

         m. Credit and  Collateral  - A credit  evaluation  is  performed by the
Company  for all  leases  and  loans  made,  with  the  collateral  requirements
determined on a case-by-case basis. The Company's loans are generally secured by
the  equipment or assets  financed and, in some cases,  other  collateral of the
borrower.  In the event of default,  the Company has the right to foreclose upon
the collateral used to secure such financing.


Note 2.  Receivables from Phoenix Leasing Partnerships, Other Affiliates, and
         Trusts:

         Receivables  from Phoenix Leasing  Partnerships,  other  affiliates and
trusts consist of the following:

                                                        September 30,  June 30,
                                                            1999         1998
                                                            ----         ----

         Management fees                                 $  155,083  $  342,154
         Acquisition fees                                   185,030     308,182
         Other receivables from Phoenix Leasing
           Partnerships, net                                203,542     846,578
         Secured line of credit due from Parent             615,019     468,453
         Receivable from Parent                           2,082,065   2,511,601
         Receivables from other corporate affiliates        203,743      38,212
                                                         ----------  ----------
                                                         $3,444,482  $4,515,180
                                                         ==========  ==========



                                       4
<PAGE>
                  PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
                      NOTES TO CONSOLIDATED BALANCE SHEETS

                               SEPTEMBER 30, 1999


Note 3. Investments in Phoenix Leasing Partnerships:

         The Company  records its  investments in Phoenix  Leasing  Partnerships
under the equity method of accounting.  The ownership interest percentages vary,
ranging  from .5% up to 25%.  As  general  partner,  the  Company  has  complete
authority in, and responsibility for, the overall management and control of each
partnership,   which  includes   responsibility   for  supervising   partnership
acquisition,  leasing, remarketing and sale of equipment.  Distributions of cash
from  the  partnerships  are  made at the  discretion  of the  general  partner;
historically,  a  significant  portion of the  partnerships'  earnings  has been
distributed annually.

         The activity in the investments in Phoenix Leasing  Partnerships are as
follows:

                                     Twelve Months Three Months   Twelve Months
                                         Ended         Ended          Ended
                                     September 30  September 30,    June 30,
                                         1999          1998           1998
                                         ----          ----           ----

         Balance, beginning of year  $ 1,655,329   $ 1,676,791   $   939,942
         Additional investments        1,159,756          --       9,024,452
         Write-off investment         (1,583,868)         --      (4,991,925)
         Equity in earnings              943,259       467,081     1,412,308
         Cash distributions           (1,982,568)     (488,543)   (4,707,987)
                                     -----------   -----------   -----------
         Balance, end of year        $   191,908   $ 1,655,329   $ 1,676,791
                                     ===========   ===========   ===========

         The Company's  total  investments in Phoenix Leasing  Partnerships  are
comprised  of  investments  in  certain   partnerships   which  are  subject  to
fluctuations due to partnerships' performances and timing of cash distributions.
At times the investment in those partnerships will be a deficit.

         In addition, four of the Phoenix Leasing Partnerships ceased operations
as of December  31,  1997 and one as of  December  31,  1998.  At  closing,  the
Company,   as  General  Partner,   was  required  to  make  additional   capital
contributions  to the extent of differences  between the  Partnership's  general
partner's tax capital  account and book capital  account  balances.  The capital
contributions  were  subsequently  written off to bring the book capital account
balance to $0. The Company  recorded a loss of  $1,583,868  and  $4,991,925 as a
result of these write-offs during the twelve months ended September 30, 1999 and
June 30, 1998, respectively.

          The aggregate  positive  investment and aggregate  deficit  investment
balances are presented separately on the balance sheets as of September 30, 1999
and June 30, 1998.

         The partnerships own and lease equipment.  All debt of the partnerships
is secured by the equipment and is without recourse to the general partners. The
unaudited  financial  statements  of  the  partnerships  reflect  the  following
combined, summarized financial information

                                                            September 30,
                                                                1999
                                                                ----

         Assets                                             $58,331,000
         Liabilities                                          3,380,000
         Partners' Capital                                   54,951,000


                                       5
<PAGE>
                  PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
                      NOTES TO CONSOLIDATED BALANCE SHEETS

                               SEPTEMBER 30, 1999

Note 3. Investments in Phoenix Leasing Partnerships (continued):

                                         Twelve Months     Three Months
                                             Ended             Ended
                                         September 30,     September 30,
                                             1999              1998
                                             ----              ----

         Revenue                          $17,166,000       $ 5,365,000
         Net Income                         9,152,000         2,766,000


Note 4.  Equipment Subject to Lease and Notes Receivable:

         Equipment  subject  to lease  includes  the  Company's  investments  in
leveraged leases,  investments in financing leases and operating  leases,  which
the Company  purchases with the intention of selling the equipment to one of its
affiliated limited  partnerships or to trusts, and off-lease  equipment held for
remarketing and sale.

         Equipment subject to lease consists of the following:

                                                      September 30,   June 30,
                                                          1999          1998
                                                          ----          ----

         Equipment on lease and held for lease, net
           of accumulated depreciation of $1,014,088
           and $1,049,718 at September 30, 1999 and
           June 30, 1998, respectively                $   677,498  $    65,921
         Leverage leases                                     --      1,051,728
         Equipment held for resale                        174,326      252,133
         Investment in financing leases                26,910,121    4,954,636
         Lease Residuals                                  331,093      297,905
                                                      -----------  -----------

         Total equipment subject to lease             $28,093,038  $ 6,622,323
                                                      ===========  ===========

Leverage Leases:
---------------

         The  Company's net  investment  in leveraged  leases is composed of the
following elements:

                                                    September 30,    June 30,
                                                        1999           1998
                                                        ----           ----

         Rental receivable (net of principal and
           interest on the nonrecourse debt)           $ --        $      --
         Estimated residual value of leased assets       --          1,740,972
         Less: Unearned and deferred income              --           (689,244)
                                                       ------      -----------

         Net investment in leveraged leases            $ --        $ 1,051,728
                                                       ======      ===========

Investment in Financing Leases:
------------------------------

         The Company has entered into direct lease  arrangements  with companies
engaged in different industries located throughout the United States. Generally,
it is  the  responsibility  of the  lessee  to  provide  maintenance  on  leased
equipment.


                                       6
<PAGE>
                  PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
                      NOTES TO CONSOLIDATED BALANCE SHEETS

                               SEPTEMBER 30, 1999


Note 4.  Equipment Subject to Lease and Notes Receivable (continued):

         The  Company's  net  investment  in  financing  leases  consists of the
following:

                                                 September 30,     June 30,
                                                     1999            1998
                                                     ----            ----

         Minimum lease payments to be received   $ 34,723,627   $  6,594,860
         Less:  unearned income                    (7,587,775)    (1,584,490)
                allowance for early termination      (225,731)       (55,734)
                                                 ------------   ------------

         Net investment in financing leases      $ 26,910,121   $  4,954,636
                                                 ============   ============

         Minimum rentals to be received on  non-cancelable  financing leases for
the twelve months ended September 30, are as follows:

         2000 .................................................. $ 10,705,488
         2001 ...................................................  10,520,594
         2002 ...................................................   8,330,819
         2003 ...................................................   4,168,023
         2004 ...................................................     947,224
         Thereafter..............................................      51,479
                                                                 -------------

              Total                                              $ 34,723,627
                                                                 =============

Notes Receivable:
----------------

         Notes receivable for the years consists of the following:

                                                    September 30,    June 30,
                                                        1999           1998
                                                        ----           ----

         Notes receivable from emerging growth and
           other companies with stated interest
           ranging from 9.7% to 26.8% per annum
           receivable in installments ranging from
           35 to 85 months collateralized by the
           equipment financed                       $ 53,482,375   $  2,258,164
         Less: allowance for losses                     (451,234)      (443,291)
                                                    ------------   ------------

              Total                                 $ 53,032,141   $ 11,814,873
                                                    ============   ============

         Minimum payments to be received on non-cancelable  notes receivable for
the twelve months ended September 30, are as follows:

                                       7
<PAGE>
                  PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
                      NOTES TO CONSOLIDATED BALANCE SHEETS

                               SEPTEMBER 30, 1999


Note 4.  Equipment Subject to Lease and Notes Receivable (continued):

         2000 ................................................. $ 17,651,033
         2001 .................................................   18,466,129
         2002 .................................................   16,758,280
         2003 .................................................   11,620,163
         2004 .................................................    4,998,673
         Thereafter............................................    1,280,156
                                                                ------------
         Total minimum payments to be received.................   70,774,434
         Impaired notes receivable.............................      817,765
         Less:  unearned interest..............................  (18,108,824)
                allowance for losses...........................     (451,234)
                                                                ------------

              Net investment in notes receivable                $ 53,032,141
                                                                ============

         At  September  30,  1999,  the  recorded  investment  in notes that are
considered  to be impaired was  $817,765.  The average  recorded  investment  in
impaired  loans during the twelve  months ended  September 30, 1999 and June 30,
1998 was $404,472 and $26,420,  respectively. The average recorded investment in
impaired loans during the three months ended September 30, 1998 was $41,006.

         The  activity in the  allowance  for losses on notes  receivable  is as
follows:

                                       Twelve Months Three Months  Twelve Months
                                           Ended         Ended         Ended
                                       September 30  September 30,   June 30,
                                           1999          1998          1998
                                           ----          ----          ----

         Beginning balance              $ 334,409     $  443,291    $    --
           Provision for (recovery of)
             losses                       478,189        (46,275)      623,686
           Write downs                   (361,364)       (62,607)     (180,395)
                                        ---------      ---------     ---------

         Ending balance                 $ 451,234      $ 334,409     $ 443,291
                                        =========      =========     =========


Note 5.  Transfer of Leased Assets and Notes Receivable:

         The   Company   temporarily   funds  and  holds   equipment   financing
transactions  structured as either financing leases or notes  receivable.  These
financing transactions are held by the Company for a short period of time before
they are then  transferred  to a  special  purpose  entity  for the  purpose  of
securitizing the payment streams. To date, the Company has been involved in five
such securitization transactions. The first three transactions were entered into
prior to June 30, 1997, the fourth  transaction was entered into on November 25,
1997,  and the  fifth on May 25,  1998.  The  Company  recognized  a net gain of
$484,060  upon the  initial  transfer of assets to a special  purpose  entity in
connection with the November 25, 1997 securitization  transaction and a net gain
of $392,570 upon the initial  transfer of assets to a special  purpose entity in
connection with the May 25, 1998 securitization  transaction.  Pursuant to these
securitization  transactions,  the Company may  continue to transfer  additional
finance  leases or notes  receivable  to these  special  purpose  entities  on a
monthly  basis  for a period  of one year  from the date of each  securitization
transaction (the Revolver Periods). During the twelve months ended September 30,
1999 and June 30, 1998,  as well as the three months ended  September  30, 1998,
the Company  transferred  additional  financing  leases and notes  receivable to
special  purpose  entities  and  recognized  gains of $855,504,  $2,046,765  and
$590,184, respectively. As of September 30, 1999, the Revolver Periods under the
securitizations  had expired.  During the period  ending  September 30, 1999 the
Company  closed two sales of loans and leases for  $18,787,767  of proceeds  and
recognized total net losses of $686,745.



                                       8
<PAGE>
                  PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
                      NOTES TO CONSOLIDATED BALANCE SHEETS

                               SEPTEMBER 30, 1999

Note 5.  Transfer of Leased Assets and Notes Receivable (continued):

         Loans and leases  financed under short term  warehouse  lines of credit
are  accounted  for as held for sale and carried at the lower of cost or market.
Loans and leases  financed under term debt  facilities are accounted for as held
for investment and carried at cost.

                                                     September 30,    June 30,
                                                         1999           1998
                                                         ----           ----

         Equipment subject to lease:
              Held for sale                          $24,392,505    $ 5,310,307
              Held for investment                      3,700,533      1,312,016
                                                     -----------    -----------
                                                     $28,093,038    $ 6,622,323
                                                     ===========    ===========

         Notes receivable:
              Held for sale                          $36,954,599    $11,814,873
              Held for investment                     16,077,541           --
                                                     -----------    -----------
                                                     $53,032,140    $11,814,873
                                                     ===========    ===========


Note 6.  Property and Equipment:

         Major classes of property and equipment are as follows:

                                                     September 30,    June 30,
                                                         1999           1998
                                                         ----           ----

         Land                                        $ 1,077,830    $ 1,077,830
         Buildings                                     7,795,494      7,452,634
         Office furniture, fixtures and equipment      4,345,830      8,012,736
         Other                                           898,849        898,849
                                                     -----------    -----------

                                                      14,118,003     17,442,049
         Less accumulated depreciation and
           amortization                               (8,654,783)   (11,541,407)
                                                     -----------    -----------

         Net Property and Equipment                  $ 5,463,220    $ 5,900,642
                                                     ===========    ===========

         PAI owns its  headquarters  building  in San  Rafael,  California.  The
Company paid  $7,749,476 to purchase the land and  construct  the building.  The
cost of construction  was paid for with a combination of $2,749,476 in cash from
the  Company's  operations  and a $5,000,000  advance  from PAI. The  $5,000,000
advance  is  included  as  a  reduction  in  receivable   from  Phoenix  Leasing
Partnerships  and other  affiliates.  PAI has  pledged  the market  value of the
building as security for a $5,000,000  Industrial Revenue Bond ("IRB") which PAI
has with the City of San Rafael, California. The principal of the IRB is payable
in a lump sum payment on October 1, 2004.  The Company paid  $203,418,  $233,492
and $45,363 in  interest  payments  related to the IRB during the twelve  months
ended September 30, 1999 and June 30, 1998, and the three months ended September
30, 1998, respectively.

         A  portion  of the  Company's  headquarters  had been  leased  to third
parties  through  October of 1998.  Effective  August 1, 1999,  the  Company and
ResourcePhoenix.Com,  Inc.  (RPC),  an  affiliate,  have  entered  into a rental
agreement with a termination date of July 31, 2001 in which RPC will pay rent in
the amount of $53,650 per month.


                                       9
<PAGE>
                  PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
                      NOTES TO CONSOLIDATED BALANCE SHEETS

                               SEPTEMBER 30, 1999

Note 7.  Investments in Securities:

         The  Company  accounts  for its  investments  in  securities  under the
Financial  Accounting  Standards Board issued Statement of Financial  Accounting
Standards  No.  115 -  Accounting  for  Certain  Investments  in Debt and Equity
Securities  (SFAS  115).  This  pronouncement   prescribes  specific  accounting
treatment   for   investments   based  on   their   classification   as   either
held-to-maturity  securities  (HTM),   available-for-sale  securities  (AFS)  or
trading securities, as defined in the statement.

         In connection with the five prior lease and note  securitizations  (see
Note 6) the Company  acquired Class C Equipment  Investment  Trust  Certificates
(Class C Shares)  and notes.  The Class C Shares are  classified  as AFS and are
reported at their  estimated  fair value of  $6,689,254  and  $6,880,457,  as of
September  30, 1999 and June 30, 1998,  respectively.  The Class C Shares do not
have a specified  contractual  maturity.  The Company  determined that under the
standards of SFAS 115 a writedown  was required to adjust the carrying  value of
four of the five Class C Shares to fair value.  The  writedown  in the amount of
$6,141,937 was recorded in the twelve months ended September 30, 1999. The gross
unrealized  gain on the Class C Shares from the remaining  securitization  as of
September 30, 1999 and June 30, 1998 was $1,457,037 and $0,  respectively.  This
amount was recorded as an adjustment to shareholder's equity.

         All other  equities  held by the Company are  classified as AFS and are
reported at their fair value of  $4,492,011  and $433,398 at September  30, 1999
and June 30, 1998, respectively. Gross unrealized gains on such securities as of
September 30, 1999 and June 30, 1998 were $4,492,011 and $393,987, respectively.

         In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging  Activities.  The  Statement  establishes  accounting  and reporting
standards requiring every derivative  instruments  (including certain derivative
instruments  embedded in other  contracts)  be recorded in the balance  sheet as
either an asset or liability measured at its fair value. This Statement requires
that changes in the derivative's fair value be recognized  currently in earnings
unless  specific  hedge  accounting  criteria are met.  Special  accounting  for
qualifying  hedges  allows a  derivative's  gains and  losses to offset  related
results on the hedged item in the income statement,  and requires that a company
must formally document,  designate, and assess the effectiveness of transactions
that receive hedge accounting.

         Statement  133 is effective for fiscal years  beginning  after June 15,
2000.  Statement  133 cannot be  applied  retroactively.  Statement  133 must be
applied to (a) derivative  instruments  and (b) certain  derivative  instruments
embedded in hybrid contracts that were issued, acquired,  substantively modified
after December 31, 1997.

         The Company uses derivative financial  instruments from time to time to
hedge against  exposures to market risks resulting from fluctuations in interest
rates.  Derivative  financial  instruments  used by the Company include interest
rate on future  securitization  transactions.  Gains or losses  related to these
interest rate swap agreements  that qualify for hedge  accounting are recognized
as adjustments to the carrying amount of the hedged item.

         During the twelve months ended September 30, 1999, the Company expensed
$854,708 related to the interest rate lock-in which was being capitalized.  This
interest rate lock was for a securitization transaction which did not occur.


Note 8.  Fair Value of Financial Instruments:

         Investments in Securities
         -------------------------

         The carrying amounts of investments in securities,  available for sale,
reported in the balance sheets approximate their fair values.


                                       10
<PAGE>
                  PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
                      NOTES TO CONSOLIDATED BALANCE SHEETS

                               SEPTEMBER 30, 1999

Note 8.  Fair Value of Financial Instruments (continued):

         Notes Receivable and Debt
         -------------------------

         The  fair  values  of the  Company's  notes  receivable  and  debt  are
estimated  based on the market prices of similar  instruments  or on the current
market interest rates for instruments with similar terms, maturities, and risks.
The estimated fair values of the Company's notes receivable and debt approximate
the carrying amounts reported in the balance sheets.


Note 9.  Short-Term and Warehouse Lines of Credit:

          To provide interim  financing for equipment and working capital needs,
the Company  executes  lines of credit which  consist of  short-term  notes with
banks with interest  rates equal to the prime rate or the banks' index rate. All
lines of credit are renewable annually at the banks' option.

         The Company,  through PAI, had access to one short-term  line of credit
totaling  $2.5 million.  As of June 30, 1999,  the line of credit was fully paid
off and the line was terminated.

         In addition,  the Company has three secured short-term  warehouse lines
of credit totaling $82.5 million,  which are used to provide  interim  financing
for the  acquisition of equipment and the financing of notes  receivable.  As of
September 30, 1999 and June 30, 1998, $64.5 and $19.1 million,  respectively, of
these lines have been drawn down and are due in one year or less. The draw-downs
under these lines are  collateralized  by  investments  in financing  leases and
notes  receivable.  The  interest  rate is tied to the Bank's base rate or LIBOR
(London  Interbank  Offered Rate). The commitment period for one of the lines of
credit which totals $37.5 million  ($31.7  million  outstanding at September 30,
1999)  terminates  on December 31, 1999.  The second line of credit which totals
$25 million  ($12.9  million  outstanding  at September 30, 1999)  terminates on
December 15, 1999.  Availability  under this line was capped at its  outstanding
balance at  September  30,  1999 and the  Company  does not have the  ability to
reborrow under this line.  Subsequent to year end this line has been extended to
March 31, 2000. The third line of credit which totals $20 million ($19.9 million
outstanding  at September 30, 1999).  The Company's  ability to borrow under the
line  expires on December  31,  1999.  Balances  remaining  under the line after
December 31, 1999 will fully amortize over a two year period.  Monthly  payments
are based on the lesser of the aggregate payments received by the Company on its
leases and notes  receivable  or the  aggregate  principal  and interest  amount
outstanding on the credit line.

         In connection  with the Company's  lines of credit,  various  financial
ratios and other  covenants must be  maintained.  The Company has guaranteed its
right,  title and interest in certain of its assets and the future receipts from
these assets in order to secure payment and performance of these credit lines.

         The Company is negotiating to extend the termination  date on the $37.5
million  line of credit to the end of April 2000.  Management  believes  that it
will be able to  continue to finance its  operations  through the period  ending
September  30,  2000.  This  may be done by  extending  and/or  refinancing  its
existing debt, sales of leases and loans, and sales of investments.



                                       11
<PAGE>

                  PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
                      NOTES TO CONSOLIDATED BALANCE SHEETS

                               SEPTEMBER 30, 1999

Note 10.  Long-Term Debt:

         Long-term debt consists of the following:

                                                          September 30, June 30,
                                                              1999        1998
                                                              ----        ----

              Mortgage payable at varying interest rates
         with an initial rate of 8.75% secured by a first
         deed of trust on real property with a value of
         $167,650. Note is amortized over 83 months with
         monthly payments of $559 and a final payment of
         $121,267                                            $133,482   $140,215


         The  aggregate  long-term  debt  maturities  for the fiscal years ended
September 30, are as follows:

         2000..............................................  $  7,797
         2001..............................................   125,685
                                                             --------
         Total                                               $133,482
                                                             ========

         On July 15, 1998, the Company entered into a term loan agreement with a
bank.  Under the term loan, the Company could borrow up to  $10,000,000  for the
purpose of financing or  refinancing  the  investments  in financing  leases and
notes   receivable.   The  amounts   borrowed   under  the  loan  agreement  are
collateralized  by these  assets  financed.  On August  24,  1998,  the  Company
borrowed $9,999,648.  This amount is due and payable in 48 months. On August 15,
1999, the Company entered into an agreement to increase the amount that could be
borrowed to $14,500,000. On August 30, 1999, the Company borrowed $4,458,240. At
September 30, 1999, $11,984,442 was outstanding.

         Interest  on this term loan is  accrued  on the  outstanding  principal
balance at a fixed rate in excess of the two-year U.S. Treasury rate that was in
effect  at the  time of the  funding.  The  amount  payable  for  each  month is
calculated by taking the difference of the amount received from leases and notes
receivable  and  the  monthly  servicing  fee,  as  well  as  expenses  paid  to
unaffiliated  third  parties  for  legal  and  collection  expenses  related  to
defaulted  leases  and notes  receivable.  Payments  will  first be  applied  to
interest and the remainder applied to the principal outstanding.

         On June 28, 1999, the Company entered into a term loan agreement with a
bank.  Under the term loan agreement,  the Company could borrow up to $7,500,000
for the purpose of financing or refinancing the investments in financing  leases
and  notes  receivable.  The  amounts  borrowed  under  the loan  agreement  are
collateralized  by these assets financed.  On July 2, 1999, the Company borrowed
$7,325,666.  This amount is due and payable in 48 months. At September 30, 1999,
$7,067,770 is outstanding.

         The terms of the agreement with the bank allow for an election  between
a prime rate or a LIBOR (London  Interbank Offered Rate). The amount payable for
each month is  calculated by taking the  difference of the amount  received from
leases and notes  receivable and the monthly  servicing fee, as well as expenses
paid to unaffiliated third parties for legal and collection  expenses related to
defaulted  leases  and notes  receivable.  Payments  will  first be  applied  to
interest and the remainder applied to the principal outstanding.

         For both term loan agreements,  the Company has also pledged its right,
title and interest in certain of its assets and the future  receipts  from these
assets, to secure payment and performance of the loans.


                                       12
<PAGE>

                  PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
                      NOTES TO CONSOLIDATED BALANCE SHEETS

                               SEPTEMBER 30, 1999

Note 11.  Income Taxes:

         Effective  July 1, 1998, the Company and all its  subsidiaries  adopted
treatment as a Subchapter  "S"  Corporation  pursuant to the Federal  Income Tax
Regulations for tax reporting purposes. Federal and State income tax regulations
provide  that taxes on the income or loss of the Company are  reportable  on the
shareholder's individual income tax return.

         For the twelve months ended June 30, 1998, the Company's income for tax
reporting  purposes  was included in the  consolidated  and combined tax returns
filed  by PAI  which  were  prepared  on the  accrual  basis of  accounting.  In
accordance  with a Tax Sharing  Agreement  effective  July 1, 1991,  between the
Company and PAI, PAI has assumed all tax liabilities  and benefits  arising from
the  Company's  income  or loss.  The  Company  computed  and  recorded  its tax
attributes and the related benefit was transferred to PAI.

         The  provision  for  income  taxes  for the year  ended  June 30,  1998
consisted of the following:

                                                              1998
                                                              ----

         Current tax expense                               $ 1,198,968
         Deferred tax benefit                                 (913,044)
                                                           -----------

                                                           $   285,924
                                                           ===========

         Cumulative temporary  differences of $6,554,133 as of June 30, 1998 was
primarily  related to  differences  in book and tax  accounting  treatments  for
leveraged leases.

         The  difference  between the  effective tax rate and statutory tax rate
was due to certain expenses  deductible for financial reporting purposes but not
for  tax  purposes,   state  tax  expense  net  of  federal  benefit  and  other
miscellaneous items.


Note 12.  Transactions with Related Parties:

         The  Company  provided  an  interest  bearing  secured  line of  credit
totaling  $10,000,000 to Phoenix Precision  Graphics,  Inc. (PPG) secured by the
common stock of PPG. PPG is a wholly owned  subsidiary  of PAI. As of October 1,
1998, this secured line of credit was transferred to Phoenix  American,  Inc. As
of September  30, 1999,  $56,781 of this line of credit was  outstanding  and is
included in Receivables from Phoenix Leasing Partnerships, other affiliates, and
trusts on the balance sheet.

         The Company has  contracted  with  ReSourcePhoenix.com,  Inc.  (RPC) to
perform accounting,  investor related, and information  technology services. The
Company paid RPC $1,827,791,  $2,399,031 and $522,072 for these services for the
twelve  months ended  September  30, 1999 and June 30,  1998,  and for the three
months ended September 30, 1998, respectively. In addition, the Company paid its
parent $1,012,854, $602,030 and $344,695 for the same periods, respectively, for
legal, human resources and other administrative services.

         Effective  August  1,  1999,  the  Parent  transferred  certain  of its
employees who performed  corporate  functions  including legal, human resources,
facilities  management,  word processing and other  administrative  functions to
RPC. As a result,  effective  August 1, 1999,  the  Company has entered  into an
agreement  with RPC in which RPC will  perform  accounting,  investor  services,
information technology services, legal, human resources and other administrative
services for a monthly  program fee. The terms of the agreement is for one year,
unless earlier terminated and shall renew  automatically for successive one year
terms  unless  written  notice is received by either  party at least ninety days
prior.


                                       13
<PAGE>
                  PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
                      NOTES TO CONSOLIDATED BALANCE SHEETS

                               SEPTEMBER 30, 1999

Note 12.  Transactions with Related Parties (continued):

         The  Company  provides an interest  bearing  secured  line of credit to
PAI's  controlling  shareholder,  which is secured by the common stock of RPC (a
California corporation owned by PAI's controlling shareholder).  As of September
30, 1999,  $2,093,859 of this line of credit had been drawn down and is included
in notes  receivable from related  parties.  In October 1999 this line of credit
was fully paid off by PAI's controlling shareholder.

         The Company  earned a management  fee from an affiliate of $500,296 and
$154,622  for the twelve  months  ended  September  30, 1999 and June 30,  1998,
respectively,  and $24,675 for the three months ended  September 30, 1998.  This
management fee is included in Portfolio management fees.


Note 13.  Commitments and Contingencies:

         Purchase  Commitments.  The Company has entered into  agreements  which
contain specific purchase commitments. The Company may satisfy these commitments
by purchasing  equipment for its own account or by assigning equipment purchases
to its affiliated  partnerships.  At September 30, 1999, the Company anticipates
being able to satisfy its future obligations under the agreements.

         Funding  Leases and Loans.  As of  September  30,  1999 the Company had
unexpired remaining commitments to customers to fund lease and loan transactions
aggregating   $90,552,937.   The  Company's   obligation  to  fund  under  these
commitments  is subject to various terms and conditions  including  satisfactory
performance  to plan.  The  commitments  typically  expire  within a year of the
original commitment date.

         Legal  Proceedings.  On October 28, 1997, a class action  complaint was
filed against Phoenix Leasing Incorporated,  Phoenix Leasing Associates,  II and
III  LP.,  Phoenix  Securities  Inc.  and  Phoenix  American  Incorporated  (the
"Companies") in California Superior Court for the County of Sacramento by eleven
individuals on behalf of investors in Phoenix Leasing Cash Distribution  Funds I
through V (the  Partnerships").  The Companies were served with the complaint on
December 9, 1997. The complaint  sought  declaratory and other relief  including
accounting,  receivership,  imposition  of a  constructive  trust  and  judicial
dissolution  and winding up of the  Partnerships,  and  damages  based on fraud,
breach of  fiduciary  duty and breach of  contract by the  Companies  as general
partners of the Partnerships.

         Plaintiffs  severed  one cause of action  from the  complaint,  a claim
related to the marketing and sale of CDF V, and  transferred  it to Marin County
Superior Court (the "Berger  Action").  Plaintiffs  then dismissed the remaining
claims in  Sacramento  Superior  Court and  refiled  them in a separate  lawsuit
making similar  allegations (the "Ash Action").  That complaint was subsequently
transferred to Marin County as well.

         Plaintiffs  have amended the Berger Action twice.  Defendants  recently
answered the complaint.  Discovery has recently commenced.  The Companies intend
to vigorously defend the complaint.

         Defendants  have filed a demurrer to the Ash Action,  which  plaintiffs
amended  three times.  Discovery  has not  commenced.  The  Companies  intend to
vigorously defend the complaint.

         Impact of Year 2000 Issue.  RPC, an  affiliate  of PLI,  does all local
computer  processing  for PLI and as such it  manages  the  Company's  Year 2000
project.

         RPC has a Year 2000 project  plan in place.  The Year 2000 project team
has identified  risks, and has implemented  remediation  procedures for its Year
2000 issues.  RPC has  budgeted for the  necessary  changes,  built  contingency
plans,  and has progressed  along the scheduled  timeline.  Installation  of all
remediation  changes to critical software and hardware was completed on November
5, 1999.


                                       14
<PAGE>
                  PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
                      NOTES TO CONSOLIDATED BALANCE SHEETS

                               SEPTEMBER 30, 1999

Note 13.  Commitments and Contingencies (continued):

         From  September 1, 1997 to September  30, 1999 the Company has incurred
direct costs of  approximately  $2,839,748  related to its Year 2000  compliance
efforts, of which $2,297,496 is attributable to consulting services. These costs
do not include  compensation  expense associated with our salaried employees nor
those of RPC who have devoted some of their time to the Year 2000 assessment and
remediation efforts.

         The Company  does not have  exposure to any  individual  customer  that
would materially affect the Company should the customer experience a significant
Year 2000 problem. However, cumulative exposure to multiple individual customers
could  materially  affect the Company  should  multiple  customers  experience a
significant Year 2000 problem.


Note 14.  Subsequent Events:

         On November 18, 1999, the Company sold leases and notes receivable to a
third  party  with a net  carrying  value of  $4,133,045  for cash  proceeds  of
$4,463,610.

         On December 20, 1999, the Company sold leases and notes receivable to a
third  party  with a net  carrying  value of  $5,186,669  for cash  proceeds  of
$5,281,770.

         As of December 27, 1999,  the gross  unrealized  gains on the Company's
equity  investments  increased  $15,969,942  since  September  30, 1999. Of this
increase,  $8,625,068  is related to  investments  which were not  marketable at
September 30, 1999 which have since become  marketable at December 27, 1999. The
remaining  amount of the increase is  attributable  to the change in fair market
value of the investments from September 30, 1999 to December 27, 1999.


                                       15